Three different plans for financing a $4,700,000 corporation are under consideration by its organizers. Under each of the following plans, the securities will be issued at their par or face amount, and the income tax rate is estimated at 40 of income. Plan 1 Plan 2 Plan 3 10% bonds $2,350,000 Preferred 10% stock, $100 par $2,350,000 1,175,000 Common stock, $4 par $4,700,000 2,350,000 1,175,000 Total $4,700,000 $4,700,000 $4,700,000 Round the answers to nearest cent. Instructions: 1. Determine for each plan the earnings per share of common stock, assuming that the income before bond interest and income tax is $1,100,000. Earnings per share of common stock Plan 1 per share Plan 2 per share Plan 3 per share 2. Determine for each plan the earnings per share of common stock, assuming that the income before bond interest and income tax is $715,000. Earnings per share of common stock
Three different plans for financing a $4,700,000 corporation are under consideration by its organizers. Under each of the following plans, the securities will be issued at their par or face amount, and the income tax rate is estimated at 40 of income. Plan 1 Plan 2 Plan 3 10% bonds $2,350,000 Preferred 10% stock, $100 par $2,350,000 1,175,000 Common stock, $4 par $4,700,000 2,350,000 1,175,000 Total $4,700,000 $4,700,000 $4,700,000 Round the answers to nearest cent. Instructions: 1. Determine for each plan the earnings per share of common stock, assuming that the income before bond interest and income tax is $1,100,000. Earnings per share of common stock Plan 1 per share Plan 2 per share Plan 3 per share 2. Determine for each plan the earnings per share of common stock, assuming that the income before bond interest and income tax is $715,000. Earnings per share of common stock
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Transcribed Image Text:### Effect of Financing on Earnings Per Share
Three different plans for financing a $4,700,000 corporation are under consideration by its organizers. Under each of the following plans, the securities will be issued at their par or face amount, and the income tax rate is estimated at 40% of income.
#### Financing Plans:
| | **Plan 1** | **Plan 2** | **Plan 3** |
|----------------------------|------------|------------|------------|
| **10% bonds** | - | - | $2,350,000 |
| **Preferred 10% stock, $100 par** | - | $2,350,000 | $1,175,000 |
| **Common stock, $4 par** | $4,700,000 | $2,350,000 | $1,175,000 |
| **Total** | $4,700,000 | $4,700,000 | $4,700,000 |
**Round the answers to the nearest cent.**
### Instructions:
1. **Determine for each plan the earnings per share of common stock, assuming that the income before bond interest and income tax is $1,100,000.**
#### Earnings per share of common stock:
- **Plan 1**: $_________ per share
- **Plan 2**: $_________ per share
- **Plan 3**: $_________ per share
2. **Determine for each plan the earnings per share of common stock, assuming that the income before bond interest and income tax is $715,000.**
#### Earnings per share of common stock:
- **Plan 1**: $_________ per share
- **Plan 2**: $_________ per share
- **Plan 3**: $_________ per share
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